Category 'EU Mergers'

This post updates one we did last May analyzing antitrust reverse breakup fees in public deals since January 1, 2005.

An antitrust reverse termination fee (ARTF), sometimes called an antitrust reverse breakup fee, is a fee payable by the buyer to the seller if and only if the deal cannot close because the necessary antitrust approvals or clearances have not been obtained. The idea behind an antitrust reverse termination fee is twofold: (1) it provides a financial incentive to the buyer to propose curative divestitures or other solutions to satisfy the competitive concerns of the antitrust reviewing authorities and so permit the deal to close, and (2) it provides the seller with some compensation in the event the deal does not close for antitrust reasons.

Our sample now covers 822 strategic negotiated transactions announced between January 1, 2005, and December 31, 2014. Of these, 88 transactions, or about 10.7% of the total, had antitrust reverse termination fees. The fees were very idiosyncratic and showed no statistically significant relationship to the transaction value of the deal or trend over time, with fees ranging from a low of 0.1% to a high of 39.8%. The average antitrust reverse termination fee for the sample was 5.7% of the transaction value, although several high percentage fees skewed the distribution to the high end. A better indicator may be the median, which was 4.3% of the transaction value.

NB: The percentage intervals on the horizontal axis are not of equal size.

Significantly, of the 79 transactions with an antitrust reverse termination fee for which the antitrust reviews have been completed, 55, or about 70%, were cleared without any antitrust challenge. One transaction (AT&T/T-Mobile) was terminated in the course of litigation with the Antitrust Division, 20 were subject to only a DOJ or FTC consent order, two (Boston Scientific/Guidant and Hexion/Huntsman) were subject to both an FTC consent order and EC undertakings, and one (Federated/May) was subject to an assurance agreement with a group of state attorneys general. Several deals did not close for nonantitrust reasons.

This note provides a much expanded sample of antitrust-related provisions in M&A agreements over the one we posted in April 2013. As before, the sample provisions have been taken (sometimes with a little modification) from actual M&A agreements.

This sample will give you with a good idea of the wide variety of provisions parties have used in dealing with

the jurisdictions and the timing where merger control filings are to be made;

the level of cooperation the parties owe each other in defending the transaction;

who controls the defense strategy

the antitrust-related conditions precedent

whether the parties are obligated to litigate an adverse agency decision and, if so, who controls the litigation strategy and how long will the parties have to litigate before the drop-dead date;

whether the buyer is obligated to "fix" any antitrust concerns through consent decree relief and how far this obligations goes;

whether an antitrust reverse termination fee is to be paid in the event of a failure of the antitrust conditions; and

the conditions under which the agreement may be terminated or the drop-dead date extended

Of course, every deal stands on its own. The language that has been used in one deal may not be appropriate for another deal, and inclusion of a provision in this sample does not constitute an endorsement of the language. Still, I find the collection helpful in drafting and negotiating the antitrust provisions in M&A agreements.

This post updates one we did over a year ago analyzing antitrust reverse breakup fees in public deals since January 1, 2005.

An antitrust reverse termination fee (ARTF), sometimes called an antitrust reverse breakup fee, is a fee payable by the buyer to the seller if and only if the deal cannot close because the necessary antitrust approvals or clearances have not been obtained. The idea behind an antitrust reverse termination fee is twofold: (1) it provides a financial incentive to the buyer to propose curative divestitures or other solutions to satisfy the competitive concerns of the antitrust reviewing authorities and so permit the deal to close, and (2) it provides the seller with some compensation in the event the deal does not close for antitrust reasons.

Our sample now covers 760 strategic negotiated transactions announced between January 1, 2005, and May 1, 2014. Of these, 79 transactions, or about 9.8% of the total, had antitrust reverse termination fees. The fees were very idiosyncratic and showed no statistically significant relationship to the transaction value of the deal or trend over time, with fees ranging from a low of 0.1% to a high of 39.8%. The average antitrust reverse termination fee for the sample was 5.8% of the transaction value, although several high percentage fees skewed the distribution to the high end. A better indicator may be the median, which was 4.3% of the transaction value.

Significantly, of the 72 completed transactions with an antitrust reverse termination fee, 50 were cleared without any antitrust challenge. One transaction (AT&T/T-Mobile) was terminated in the course of litigation with the Antitrust Division, 19 were subject to only a DOJ or FTC consent order, one (Boston Scientific/Guidant) was subject to both an FTC consent order and EC undertakings, and one (Federated/May) was subject to an assurance agreement with a group of state attorneys general.

New York M&A partner Peter Lyons, antitrust partner Beau Buffier and M&A associate Tammara Fort, along with J. Reuben Clark Law School (Brigham Young University) associate professor Matthew Jennejohn, published an article, "Reasonable Best Efforts: Cold Comfort to Sellers,” in the January 2014 issue of The M&A Lawyer.

The article examines a preliminary bench ruling from the Delaware Chancery Court in the matter of Cooper Tire & Rubber Company v. Apollo (Mauritius) Holdings Pvt. Ltd., et al, which refused Cooper Tire’s assertion that Apollo has failed to use its reasonable best efforts to complete negotiations with Cooper Tire’s labor union and close their then-pending merger. According to the authors, the case “provides a rare Delaware court interpretation of the actions required to satisfy the “reasonable best efforts” standard that has become commonplace in antitrust covenants in merger agreements.” They add that, based on Cooper, “a reasonable best efforts standard alone provides cold comfort to sellers seeking deal certainty in circumstances where there is a meaningful likelihood that the antitrust authorities will require economic concessions in order to approve a transaction.” In the end, according to the authors, the lesson of Cooper is clear: “if a strategic buyer comes offering assurances of reasonable best efforts without any specifics, let the seller beware.”

This note provides a much expanded sample of antitrust-related provisons in M&A agreements over the one we posted in August 2012. As before, the sample provisions have been taken (sometimes with a little modification) from actual M&A agreements.

This sample will give you with a good idea of the wide variety of provisions parties have used in dealing with

the jurisdictions and the timing where merger control filings are to be made;

the level of cooperation the parties owe each other in defending the transaction;

who controls the defense strategy

the antitrust-related conditions precedent

whether the parties are obligated to litigate an adverse agency decision and, if so, who controls the litigation strategy and how long will the parties have to litigate before the drop-dead date;

whether the buyer is obligated to "fix" any antitrust concerns through consent decree relief and how far this obligations goes;

whether an antitrust reverse termination fee is to be paid in the event of a failure of the antitrust conditions; and

the conditions under which the agreement may be terminated or the drop-dead date extended

Of course, every deal stands on its own. The language that has been used in one deal may not be appropriate for another deal, and inclusion of a provision in this sample does not constitute an endorsement of the language. Still, I find the collection helpful in drafting and negotiating the antitrust provisions in M&A agreements.

This note provides a much expanded sample of antitrust-related provisons in M&A agreements over the one we posted last year. As before, the sample provisions have been taken (sometimes with a little modification) from actual M&A agreements.

This sample will give you with a good idea of the wide variety of provisions parties have used in dealing with

the jurisdictions and the timing where merger control filings are to be made;

the level of cooperation the parties owe each other in defending the transaction;

who controls the defense strategy

the antitrust-related conditions precedent

whether the parties are obligated to litigate an adverse agency decision and, if so, who controls the litigation strategy and how long will the parties have to litigate before the drop-dead date;

whether the buyer is obligated to "fix" any antitrust concerns through consent decree relief and how far this obligations goes;

whether an antitrust reverse termination fee is to be paid in the event of a failure of the antitrust conditions; and

the conditions under which the agreement may be terminated or the drop-dead date extended

Of course, every deal stands on its own. The language that has been used in one deal may not be appropriate for another deal, and inclusion of a provision in this sample does not constitute an endorsement of the language. Still, I find the collection helpful in drafting and negotiating the antitrust provisions in M&A agreements.

This post updates one we did a year ago analyzing antitrust reverse breakup fees in public deals since January 1, 2005. In two related notes, we discussed various means of allocating antitrust risk in an acquisition agreement and provided some sample risk-shifting provisions that have been used in actual deals. We will be updating those posts shortly.

This post examines a particular means of allocating antitrust risk: the antitrust reverse termination fee (ARTF), sometimes called an antitrust reverse breakup fee. An antitrust reverse termination fee is a fee payable by the buyer to the seller if and only if the deal cannot close because the necessary antitrust approvals or clearances have not been obtained. The idea behind an antitrust reverse termination fee is twofold: (1) it provides a financial incentive to the buyer to propose curative divestitures or other solutions to satisfy the competitive concerns of the antitrust reviewing authorities and so permit the deal to close, and (2) it provides the seller with some compensation in the event the deal does not close for antitrust reasons.

In a sample of 633 strategic negotiated transactions announced between January 1, 2005, and June 30, 2012, 58 transactions, or about 9.2% of the total, had antitrust reverse termination fees. The fees were very idiosyncratic and showed no statistically significant relationship to the transaction value of the deal or trend over time, with fees ranging from a low of 0.1% to a high of 39.8%. The average antitrust reverse termination fee for the sample was 5.8% of the transaction value, although since several high percentage fees skewed the distribution to the high end, a better indicator may be the median, which was 3.9% of the transaction value.

Significantly, there was an antitrust intervention in only only 16 of the 58 transactions since January 1, 2005, with antitrust reverse termination fees. One transaction (AT&T/T-Mobile) was terminated in the course of litigation with the Antitrust Division, 13 were subject to only a DOJ or FTC consent order, one (Boston Scientific/Guidant) was subject to both an FTC consent order and EC undertakings, and one (Federated/May) was subject to an assurance agreement with a group of state attorneys general.

The note begins with an example of an antitrust reverse termination fee provision found in the recent Cardinal Health/Kinray stock purchase agreement. This is a fairly typical provision, although, not surprisingly, the ARTF provisions vary considerably from deal to deal. The middle sections explain how we created our sample set, analyze the occurrence and the magnitudes of antitrust reverse termination fees in the sample, and look at a few sample outliers. Finally, we look at the few deals in which the antitrust conditions failed and the antitrust reverse termination fee was paid.

NB: Surprisingly, there were no deals with antitrust reverse termination fees that satisfied our screening criteria from November 12, 2011, to June 30, 2012. There have been several since then, and we have updated the spreadsheet below through November 30, 2012.